Believe it or not, it is not your fault that formal economic concepts are difficult for almost everyone to understand. Here’s why.
Fundamentally, the hard part about learning economics is that people need to use what physics calls a “first principles approach” to figure out what is happening. Economics tends to have a small amount of information that is true with a goal to reason your way up from there.
Most people have never had to do that before because people, as Elon Musk famously point out many times, analogies to something else is how the world is generally understood. I have found that once students understand they have to start from the start then go up from there rather than try to think of economics like something else, they start to get it and do much better moving forward.
Maybe I am a bit biased as someone who majored in Economics for my bachelor’s degree, but there is a lot about the academic study of it that is difficult for many people. As I have been working with students all over the world to try to help them better understand the weird world of economics, a clear trend has emerged in where people tend to struggle.
The dreaded graphs! Of the people who have a hard time with interpreting graphs, most of the issue surrounds this notion of what a “curve” means and why it means one thing but not another. The classic questions of why supply slopes up and to the right and why demand slopes down and to the right. Why?
While there are many kinds of curves, the point is that it is often difficult for people to visualize how to graph a combination of prices and quantities. Add in other curves, slopes, the elasticity of the lines at a point, maybe a smidgen of calculus, and it’s time to go find the migraine relief pills.
Time for a confession. I do not like to do math in economics problems either. I am not one of those people who can just look at some equations and tell you everything about the problem.
People who struggle with the math parts need to be able to visualize what is happening first before trying to do the math. Generally, people have an easier time with the concepts in graph form than math form.
What Is Missing from Economics Education?
Economics needs a story to be told. A professor saying that the demand curve slopes down and to the right on a graph makes complete sense to the professor because they have dedicated a decade or more of their lives where that idea is so ingrained in their mind that it is difficult to remember how it felt to be someone seeing that for the first time.
Give an example with context with a question. Would most people who drive gasoline-powered cars buy the same amount of gas if it were $2/gal as they would when it rises to $10/gal? Of course not. Gas being 5 times as expensive as going to cause most people to buy less gas.
In economic terms, we see that as price rises, the quantity demanded decreases.
Now flip the script. What if gas prices fall from $10/gal to $2/gal? People are going to see lower prices and therefore have a higher quantity demanded.
In the graph above, point A tells the story about $10/gal gas and point B does the same for $2/gal gas. As prices fall from $10/gal to $2/gal, the point at which we meet the demand curve tells us what combination of price and quantity demanded is correct.
Finally, think about all the people you know. Some have enough money that they really do not care what the price is. They are going to buy the same amount no matter what. Others are extremely sensitive to the price where every cent matters so a small change in price corresponds very closely to how much gas they will buy. Most people are in the center where they are somewhat sensitive to price. If you aggregate all those people into a big table of prices and quantities of gas they would actually buy, you end up with a demand “curve” that slopes down and to the right.
If only the price changes, that is a change in quantity demanded, not a change in demand. When you move on the same line, that’s a movement along a curve, not a movement of the curve. That means we move from point A to point B or from point B to point A.
I have used that simple example dozens if not hundreds of times to help students new to economic concepts to grasp what a curve means. Once we get through that, teaching supply, marginal cost, marginal benefit, the variable cost, total costs, etc. becomes way easier for students to grasp.
Hopefully, this little insight helps you get a better idea of how to frame economic ideas. Let me know in the responses to what other economics topics you want me to cover in the future!